23.04.2013

Test case: The podcast patents and understanding the fundamentals of patent value and patent monetization

In order to allow readers to understand the dynamics and considerations behind patent value and patent monetization, this entry analyzes the recent lawsuit filed against CBS and NBC for infringing patents related to podcasting.  The analysis serves as a classic example of why it often takes a decade or more before a patent is valuable, and how value is established.

 A bit of background:  Podcasting and rss feeds relate to the ability of a user to subscribe to and receive episodes of a program/content automatically via push on a regular basis.   An example of this might be a lecture series, sports programs, news or a television show pushed to the user’s PC or mobile device.  A few years before iTunes launched with podcast content in 2006, podcast inventor Adam Curry launched PodShow and essentially created the world of podcasting. At first, the field was dominated by independent private podcasters who delivered episodes of self-produced content.  In parallel, the world of media started experimenting with podcasting, leveraging their compelling quality episode-based content (news, sports, etc.). 

The benefits of podcasting were numerous:  Podcasting allowed users to subscribe to and receive rich content of interest to then. Also, the content was delivered automatically.  Podcasting also allowed media companies to re-use their existing programs and content in a few manner. 

Podcasting did not take off relative to blogging and social media.  This for several reasons: (1) independent podcasting was not compelling enough to generate mass audience.  (2) When iTunes launched, it quickly focused on music which had a clear business model. (3) Podcasting had no business model and no money in the food-chain.  (4) Unlike blogging which allowed the ordinary user to easily create and consume content, podcasting required a commitment to regularly produce episodes, purchase recording equipment, conduct regular interviews, etc.    

While it did not thrive, podcasting did not disappear.  It continued to be used by media companies such as TV, radio and newspaper companies who had and/or created compelling content.  Podcasting, however, never established a business/revenue model and continued to be offered for free.   

Enter the world of patents.  In the late 1990’s, the concept of audio podcasting was patented by company calledPersonal Audio.  The patent covers "an audio program and message distribution system in which a host system transmits information regarding episodes to client subscriber locations".

Had podcasting taken off and created an ecosystem involving significant revenues, Personal Audio would have sought compensation years ago from the infringers.  But this did not happen, so Personal Audio waited, hoping that one day it would.  That never happened.

But with its patent about to expire in about 2017, Personal Audio finally faced a choice:  either seek some compensation now or forever be barred. Of course, seeing that podcasting had yet to generate much revenues, Personal Audio knew in advance that its compensation, measured as a small percentage of “infringing sales” would be relatively modest.

So it commenced filing lawsuits against who?  The giants. First against Apple for the use of the technology on iTunes.  But as the podcasts were offered for free, Personal Audio only won a modest $12 Million judgment against Apple. Recently, Personal Audio filed suit against the big media companies who were distributing their free podcasts, claiming that their audio podcasts infringed its patent.  These podcasts include programming such as 60 Minutes, CBS Evening News, Face the Nation, and Meet the Press to name a few.  Once again, it is assumed that any judgments the company receives will be small. 

Richard Baker, Vice President of Personal Audio, stated that "It's unfortunate that an inventor has to resort to litigation in order to get people to respond to offers for amicable licensing discussions. The inventors are just looking to  be compensated for their hard work and the risk they took to bring this technology to the industry."

Understanding the dynamics of this podcast can help explain why patents are often valuable halfway through their life, and why a Facetime which nobody uses won $368M against Apple while Personal Audio won peanuts.   First. as was the case here, it can take many years until the market heads in the direction of a patent.   Second, a patent can be infringed a lot with a product that has no revenue associated with it, in which case its value is relatively small.